9) Notarial Bonds, Suretyship

Question 1

what are special notarial bonds?

Answer 1

security over movables which do not require delivery of the property to C

Question 2

which Act governs SNBs?

Answer 2

Security by Means of Movable Property Act

Question 3

when does an SNB become real security?

Answer 3

if it complies with the Act

Question 4

hypothecated property?

Answer 4

secured property

Question 5

who is the bondholder?

Answer 5

the creditor

Question 6

steps for creation of ltd real right under an SNB?

Answer 6

• signed written NB agreement by both parties before a notary and two witnesses (only personal right)
• registration of bond at Deeds office (creates LRR)

Question 7

what is the purpose of the bond registration at the Deeds office?

Answer 7

to serve as public notification – creditors can assess D’s financial position

Question 8

requirements for the creation of a ltd. real right?

Answer 8

a) bond over tangibles (thus cession better for int)
b) property is described in bond in a way that makes it easily recognizable

Question 9

effects of a SNB?

Answer 9

once the bond is registered, an complies with the act, it has the same effects as a pledge

Question 10

ranking of SNBs?

Answer 10

order of registration date

Question 11

when is an SNB terminated?

Answer 11

• payment of obligation
• destruction of property

Question 12

what is a general notarial bond?

Answer 12

where the C has security over ALL of D’s movables, even items not specifically mentioned in the agreement

Question 13

requirements of a GNB?

Answer 13

• valid principal/underlying obligation
• property of another that the bondholder has a right in
• signed and executed before a notary and two witnesses then registered
  (no ltd. real right created = not great security)

Question 14

effects of a GNB?

Answer 14

• preferent, not secured, claim for C on insolvency of D
• no real right, so no preference if another creditor attaches the property for execution
• if debtor defaults, same as always

Question 15

what is credit grantor’s hypothec?

Answer 15

• someone buys something under an NCA credit agreement and the agreement says that the buyer only becomes owner once last instalment paid
• s84 of the insolvency act will apply when D goes insolvent, and the seller will have a hypothec over the property ito any amount still due to C – secured claim
• however, seller can’t have hypothec over own property, so ownership transfers to buyer and right to payment is replaced by hypothec

Question 16

how is credit grantor’s hypothec conferred?

Answer 16

by operation of law

Question 17

what is lien?

Answer 17

right of retention – right conferred by law on a person who is in possession of property of another which they have spent money/labour on. the right entitles the person to retain possession until compensated. possession is key.

Question 18

two types of lien?

Answer 18

• enrichment lien
• debtor-creditor lien

Question 19

ranking of securities over immovables in insolvency?

Answer 19

1) enrichment lien
2) mortgage
3) d/c lienholder
(all three must have a mortgage agreement)

Question 20

ranking of securities over movables in insolvency?

Answer 20

1) enrichment lien
2) pledge / cession
3) SNC(s)
4) credit grantor’s hypothec
5) landlord’s tacit hypothec
6) d-c lien

Question 21

what kind of security is suretyship?

Answer 21

personal security

Question 22

what happens in a suretyship?

Answer 22

• surety is bound to creditor, not the property
• debtor is not party to the contract

Question 23

suretyship contract features?

Answer 23

• accessory to loan contract (separate)
• must be signed and in writing on behalf of or by the surety (invalid otherwise)
• must comply with NCA if relevant

Question 24

surety defenses against the creditor? (to avoid payment)

Answer 24

1) defenses against principal obligation (invalid, illegal)
2) benefit of excussion
3) benefit of division

Question 25

how does the benefit of excussion work?

Answer 25

surety may claim that C must first use all legal remedies against D before S can be sued

Question 26

when will benefit of excussion not be allowed?

Answer 26

• if renounced
• S bound himself as surety AND co-principal debtor
• principal D has been seq/liq/left the country

Question 27

how does the benefit of division work?

Answer 27

if no % division specified in the contract, co-sureties can argue to use the pro-rata share of debt (50/50)

Question 28

when is benefit of division not allowed?

Answer 28

• renounced
• S bound himself as surety AND co-principal debtor
• co-surety cannot be claimed from

Question 29

rights of the surety if they pay the principal debt?

Answer 29

1) right of recourse against D
2) right of recourse against co-S if he paid full amount

Question 30

termination of suretyship?

Answer 30

• payment
• expiration of time (if stated in agreement)
• NOT by death

Question 31

why is suretyship not the best?

Answer 31

if surety has no money either, creditor gets nothing. also very onerous for surety.